10 Unexpected Benefits of Delaying Your Retirement, According to Financial Consultants
Although many of us enjoy our chosen careers, even those who feel genuinely happy as they set off for work every day secretly dream of retiring, trading in meetings and memos for gardening and grandchildren. And although you may associate retiring with old age, think again: these days, the average retirement age is 62, according to USA Today reporting on recent surveys.
While retiring early can certainly have its benefits—reduced stress, increased personal freedom, more time to spend with family and friends, to name a few—there are some impactful benefits of retiring later that may turn your head.
“Every person’s situation is different, but if you are in good health and enjoy your work, then delaying retirement is a great option to potentially enhance your financial future,” says Julia Pham, CFP?, Wealth Manager. “For every year that you delay retirement, not only are you not drawing down from your savings, but you also have the opportunity to stock away even more into savings. Aside from the financial benefits, delaying retirement may provide a sense of purpose and provide opportunities for social interaction, which can be crucial for your mental well-being.”
Ahead, read about these unexpected benefits straight from financial experts.
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10 Unexpected Benefits of Delaying Your Retirement, According to Financial Consultants
1. Improves Longevity
“From a longevity literacy perspective, Americans are largely unaware of how long they will live,” notes Sherry Finkel Murphy, CFP?, RICP?, ChFC?, Founder, Madrina Molly, LLC, which provides financial and longevity planning education.
Finkel Murphy points out that the life expectancy for a 65-year-old is now 87 years for a woman and 85 years for a man.
“With retirement studies showing that retirement happiness involves maintaining a sense of ‘purpose,’ doing meaningful work, preferably on one’s own terms and schedule, will keep your brain and your body happier,” Finkel Murphy says.
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2. Increases Retirement Savings
Pham says that by continuing to work, you logically have more time to contribute to retirement savings accounts, such as 401(k)s, IRAs or other investment vehicles. “This can result in a larger nest egg when you do eventually retire,” she says.
3. Delays Withdrawals
Additionally, Pham says that delaying your retirement means you’ll be able to delay your withdrawals, which also means your money will spend more time invested for compound growth.
4. Eases Healthcare Costs
Remember that those corporate benefits can offset spending from savings. As Finkel Murphy says, healthcare is expensive. She goes on to say, “Working for healthcare benefits rather than paying out of pocket, at least until using Medicare (age 65,) is a big plus, financially. I don’t think we appreciate how much healthcare costs until we are forced to go to the marketplace.”
As Pham concludes, delaying retirement allows you to continue receiving these benefits, which can help reduce your healthcare expenses in retirement.
5. Continued Employer Contributions
Another benefit of working for an employer? Receiving those matching contributions from your employer, if it’s offered.
“Some employers offer retirement benefits such as matching contributions to 401(k) plans,” Pham says. “By delaying retirement, you can continue to benefit from these employer contributions, which could potentially increase your retirement savings.”
6. Maintains Lifestyle Longer
“There’s nothing that improves retirement income models like working longer,” Finkel Murphy says. “If you are underfunded for retirement, working a few years more has the greatest impact on maintaining lifestyle into your 90s. Creating income offsets spending down from retirement savings, permits the savings to compound another year (which could be huge) and improves retirement spending overall. This is the hands-down best way to address a shortfall in retirement savings.”
7. Greater Social Security Benefit
Finkel Murphy says that the longer you wait to claim your social security benefit, the bigger it will be.
“You will need all of it,” she says. “People don’t understand how their social security benefit is calculated. As a result, they give themselves a haircut on the benefit they’ve worked their whole lives to receive. While the age at which a professional will receive 100% of their benefit, if they were born in 1960 or later, is 67, there’s as much as a 30% penalty for taking it early (62) and a 24% bonus for taking it late (70). I’ll take the automatic 8% bonus each year (68, 69, 70), thank you.”
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8. Ability to Pay for Children’s Education More Comfortably
Since GenX parents tend to be older, as Finkel Murphy points out, they may actually be near retirement age when they’re children go off to college. She says that paying for college is hard enough, but paying for college out of savings versus income is often not an ideal situation.
“When clients tell me they want to retire at 60, I do the math of their children’s ages and ask what it would mean to them if their children weren’t yet launched,” she says. “It’s possible to do, of course, but it requires a lot of extra savings when people tell me they want to retire before their kids are out of school. As a rule, retirement works better a few years after the children are successfully launched, giving the household time to recover from high expenses and enjoy a few years of better cashflow to check off some bucket list items.”
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9. Deferred Pension Benefits
Pham says that if you're eligible for a pension through your employer, delaying retirement may increase the amount of your monthly pension benefit. “Many pension plans use a formula based on years of service and salary, so working longer can boost your pension income in retirement,” she explains.
10. Cross Off More Items on Bucket List
Finkel Murphy says that when you’re in your 50s and 60s, it’s the perfect time to knock off bucket list items out of cashflow and not retirement savings.
“Why?” she says. “Because the kids are old enough to watch themselves (or are launched) and the parents aren’t so old that travel could be prohibited by their parents’ care needs or their own frailty. I’ve had some clients wait too long to climb Machu Pichu or walk Eastern Europe’s cobblestones. The expensive vacations are easier out of cashflow.”
6 Best Tips for Preparing for Retirement
1. Prevent Unexpected Healthcare Costs
It’s helpful to make a direct connection between your health and preparing for retirement. That’s why Finkel Murphy recommends “working on your health, mobility and strength” sooner rather than later. As she says, “Failure to keep it up will result in out-of-pocket healthcare costs you don’t like.”
2. Automate Retirement Savings
Pham says that the best thing you can do when prepping for retirement is to automate your retirement savings.
“Savings can be much easier when you can set it and forget it and happens without you having to think twice about it,” she says.
3. Allow Your Savings to Compound
“Don’t be in a rush to take money out of the market,” Finkel Murphy advises. “If your money compounds at 7.2%, it doubles in 10 years. If you avoid spending down at 60 and wait until you are 70, you just doubled your wealth (and your likelihood of not running out of money).”
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4. Use All the Tools You Can
Finkel Murphy says that it’s important to consider all the tools available to you to create a secure retirement. She says that this may include carving an income annuity out of part of your savings to ensure you never run out of money or using permanent life insurance/long term care insurance to bolster your estate.
5. Be Smart About Saving
“If your workplace offers a 401(k) plan, take advantage, and if they offer a company match, try to contribute at least the amount that they will match,” Pham says. “Your target savings rate should be 15% (including the match).”
Pham adds that any time you get a raise, try and put that extra money earned toward retirement savings.
6. Prep a “Next Act”
“If you feel you want or need a ‘next act,’ your best time to start it is while you are currently employed and receiving employer benefits,” Finkel Murphy says. “Give yourself a decade of runway to build a consultancy or side hustle. Many financial plans have been saved by the ability to earn $1,000/month from an Etsy store or consultancy or by indulging one’s passion for home projects at Home Depot or Lowe’s.”
Next up, find out if it’s better to save for retirement or pay off debt.
Sources
Julia Pham, CFP?, Wealth Manager.
Sherry Finkel Murphy, CFP?, RICP?, ChFC?, Founder, Madrina Molly, LLC.
USA Today: “Think you'll work past 70? Good luck. Why most of us retire earlier.”
